No tax on media now but education still hit

By Gvantsa Gabekhadze

Thursday, June 24

The new tax code will not apply to the Ministry of Agriculture and the print media, Finance Minister Kakha Baindurashvili stated while presenting it at a hearing of the Parliamentary Finance and Budget Committee on June 22.

The reports that the print media would be taxed are a misunderstanding and should be corrected. It would be inappropriate to tax the press when tax revenues from the press as a whole are less than those from a single ordinary company. The Government has revised its initial plan to cut income tax from 20% to 15% by 2013. According to the proposed draft of the tax code income tax will remain 20% in 2013 but will be reduced to 18% from 2014, the Minister said.

However, one of the most controversial aspects of the draft remains in place. "The proposed application of VAT to higher educational institutions will not be removed. The Government also intends to increase the excise tax on alcohol. Duties will be doubled on ethyl spirit (to GEL 2.6 per litre), vodka (to GEL 3 per litre), whisky (to GEL 5 per litre) and beer (to GEL 0.4 per litre). Excise duties on the export of ferrous and non-ferrous metals will increase from current the GEL 80 per tonne to GEL 120. Excise duties will be introduced for telephone communication services, the exact rate to be defined by the Government within the limit of 10% of the total turnover of telephone communication services in the accounting period, Baindurashvili stated.

The Minister also underlined the innovative aspects of the draft. "The proposed draft introduces the new tax category of micro businesses, into which will fall those businessmen whose annual turnover does not exceed GEL 30,000 and who do not use hired labour in their operations. Micro businessmen will be fully exempt from income tax. The category of small businesses will contain those with an annual turnover of no more than GEL 200,000. The income of such businesses will be taxed at either 3% or 5%, the Minister said, adding that the new institutions of Business Ombudsman and Council of Auditors would be established under the new code.

The Government's entirely positive view of the new code is not shared by some opposition parties. Manana Nachkebia from the New Rights told The Messenger, "When the Government discussed the code with business sector representatives and the analysts, discussions in which I also took part, less positives views were expressed about it. This is a revolutionary code. There are some positives things in it, like distinguishing between micro and small businesses, some tax administration measures and establishing the Business Ombudsman post, but the Ombudsman is to be appointed by the Prime Minister, which will compromise his impartiality. The worst thing is that this new code, like the previous one, does not protect taxpayers and gives the Government levers to put pressure on the business sector, Nachkebia said.

"We are very critical of the proposed tax code," Kakha Kukava, one of the leaders of the Conservative Party, told The Messenger. "There are too many question marks about this new code, especially regarding tax administration. In the next few days we are planning to meet with analysts and discuss this issue in detail, after which we will make substantive statements about it, Kukava said.

Economic analyst Davit Narmania told The Messenger, "There are too many issues in the new tax code still being discussed and at the present moment I cannot make a definite comment. What I can say at present is that the new code really does have some positive elements, like creating the post of Business Ombudsman, as long as this person is independent. The most painful thing in it is the possible imposition of VAT on educational institutions. If the authorities want to help education as they say this should not be discussed. In conclusion, I think this new tax code is designed to store more money in the state Budget, Narmania said.